Osborne insists 'plan is working'

Osborne insists 'plan is working'

Osborne insists 'plan is working'

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Nick Clegg says changes which will result in people having to work longer before they can collect state pensions are the result of a more affluent and healthy society

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Chancellor George Osborne is making his Autumn Statement on the economy

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Chancellor of the Exchequer George Osborne delivers his Autumn Statement to MPs in the House of Commons

As new figures forecast Britain's public finances will be back in surplus by 2018, Chancellor George Osborne used his annual Autumn Statement to claim economic victory over Labour, saying that critics of his austerity programme have been "proved comprehensively wrong".

And the Chancellor sought to out-manoeuvre Labour politically, announcing plans for an updated Charter of Budget Responsibility, to be approved by a Commons vote in a year's time, which would commit the Government to spending restraint stretching long after the 2015 general election.

Mr Osborne hailed Office for Budget Responsibility forecasts upgrading growth to 1.4% this year - more than double the level expected at the time of the Budget in March - and 2.4% in 2014, and revising down expectations for state borrowing by a total of £73 billion over the next five years.

Reminding MPs that the Government had "held our nerve" amid calls for an economic Plan B, Mr Osborne said: "Thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working."

But he warned that "the job is not yet done" as he laid out further saving measures, including £3 billion cuts in public sector spending, a new cap on the overall welfare bill and an increase in the state pension age to 68 in the mid-2030s and 69 in the late-2040s - sparking union protests that ministers expected young people to "work until they drop".

Labour rejected the Chancellor's claims of success, pointing to figures suggesting that working people were an average £1,700 a year worse off since the 2010 election because of prices rising faster than wages.

"There has not been a Parliament in living memory where we have had a fall in living standards like this," said shadow chancellor Ed Balls, who branded Mr Osborne an "out-of-touch Chancellor" who was "in denial" about the state of the economy.

The UK economy has grown by just 2.5% since Mr Osborne's first spending review in 2010, rather that the 7.7% forecast at the time, while the Government will have borrowed £198 billion more by 2015 than it planned when it came to office, said Mr Balls.

The OBR warned that improvements to the fiscal outlook were "cyclical rather than structural" and noted that higher-than-expected growth this year has been fuelled by consumer spending and rising house prices, rather than business investment and trade.

And there were words of caution from the Institute for Fiscal Studies economic thinktank, whose director Paul Johnson told the BBC: "We are still in a big hole. We are still borrowing a lot more than £100 billion this year which is a lot more than the Chancellor hoped back in 2010. There is an awful lot of austerity still to come."

Mr Osborne unveiled measures to help young people into work, scrapping employers' national insurance contributions for under-21s, in a move which the Treasury said would affect 1.5 million jobs.

"We're not going to leave young people behind as the economy grows. We are going to have a responsible recovery for all," said the Chancellor.

But he also warned that jobless 18-21 year-olds without basic English and maths skills will be required to undertake training or lose benefits and to start a traineeship, work experience or community work after six months or face the same sanction.

In a move designed to stimulate economic activity, the Chancellor confirmed business rates will be capped at 2% from April 2014.

He announced that £1,000 will be knocked off rates for small shops, pubs and cafes in the UK's high streets, as well as tax breaks to encourage retailers to occupy vacant stores.

Mr Osborne angered environmentalists by announcing a new allowance to encourage investment in shale gas.

And he said fuel duty would be frozen again next year, as he cancelled the final 2p-a-litre rise pencilled in by Labour. Meanwhile, rail fares will rise in line with inflation in January, rather than the planned inflation plus 1%.

The Chancellor announced £1 billion in loans to unblock housing developments in Manchester, Leeds and elsewhere.

He announced an additional 30,000 university places next year, with the cap on student numbers abolished altogether in 2015.

He also confirmed that funding would be made available for a programme to upgrade school kitchens - pointedly voicing his support for Nick Clegg over the issue, which sparked a furious briefing war yesterday between the Deputy Prime Minister and Education Secretary Michael Gove.

As expected, he gave married couples a boost by bringing in a £1,000 tax allowance transfer.

And he sought to take some of the steam out of the overheating London property market by imposing Capital Gains Tax on residential properties sold by owners who are not resident in the UK.

Mr Osborne said the improving economic outlook meant borrowing would be £111 billion this year - £9 billion less than predicted at the time of the Budget in March.

He revealed that the recession had been even deeper than feared - with GDP down by 7.2% rather than 6.3%, the equivalent of £3,000 per household and one of the sharpest falls globally.

But he said that UK plc was now growing faster than any other advanced economy, winning Tory cheers with his declaration: "Britain's moving again; let's keep going."

Mr Osborne's Treasury deputy, Liberal Democrat Danny Alexander, tried to claim credit for his own party, using Twitter terminology to hail the "#LibDemRecovery".

"This recovery would not have been possible without us, and neither would the vast majority of the positive measures in today's Autumn Statement," wrote the Treasury Chief Secretary in a message to party activists.

"In fact, setting the Tory marriage tax break to one side, the Autumn Statement is packed full of Liberal Democrat ideas."

The CBI backed Mr Osborne's determination to press ahead with his economic strategy. Director general John Cridland said: "We have always advocated the dual approach of tackling the deficit and driving growth - the OBR forecasts confirm it is working. Let's stick with what works."

But TUC general secretary Frances O'Grady said: "Growth may be returning but families are getting poorer. The official forecasts show that Britain's living standards squeeze is to get even tighter - a point curiously absent from the Chancellor's address - and is a major blow to hard-working people. "

Mark Serwotka, leader of the Public and Commercial Services union said: " This is not an economic plan, it's austerity for austerity's sake, as the Tories - propped up by the Lib Dems - look to reshape our society for years to come and make the poor, sick and unemployed pay for the greed and recklessness of wealthy elites."